What PMI data for March show about factory activity and business sentiment

India’s manufacturing sector, which accounts for a quarter of economic output, had rebounded last year after slumping during the months-long lockdown in 2020 and remained in growth mode last year as well as during the third wave of the pandemic earlier this year.

Latest data now shows that business conditions in India improved in March, too, but factory orders and production expanded at a slower pace and new export orders declined.

At the same time, price indices increased since February to signal mounting price pressures. Inflation concerns also dampened business confidence, which fell to its lowest level in two years.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) stood at 54.0 in March, signalling an improvement in the health of the sector. However, falling from 54.9 in February, the latest reading highlighted the joint-weakest rate of growth since September 2021.

Pollyanna De Lima, Economics Associate Director at S&P Global, said: “Manufacturing sector growth in India weakened at the end of fiscal year 2021/22, with companies reporting softer expansions in new orders and production.”

New orders, production

According to the survey, goods producers indicated that new orders continued to increase in March. The rate of expansion eased to a six-month low, but remained marked. Where growth was reported, survey participants commented on successful marketing efforts and improved demand conditions.

Rising sales supported a further upturn in production volumes, the ninth in consecutive months. Despite slowing to the weakest since last September, the rate of expansion was marked and outpaced its long-run average.

There was a renewed decline in new export orders received by Indian goods producers, ending an eight-month sequence of growth. However, the overall rate of reduction was modest.

Inflation concerns

Manufacturers reported another increase in input prices at the end of fiscal year 2021-22. Chemical, energy, fabric, foodstuff and metal costs were all reportedly greater than in February.

The overall rate of inflation quickened and outpaced its long-run average, but was the second-slowest in six months.

Output prices rose in March as goods producers sought to share part of the additional cost burden with their clients. The rate of charge inflation picked up to a five-month high, but was moderate and matched its long-run average.

"The slowdown was accompanied by an intensification of inflationary pressures, although the rate of increase in input costs remained below those seen towards the end of 2021,” said De Lima.

Business confidence falls

March data pointed to subdued optimism towards growth prospects among Indian manufacturers, with the overall level of sentiment slipping to a two-year low. Inflation concerns and economic uncertainty dampened overall confidence, the survey showed.

"Companies themselves appeared very concerned about price pressures, which was a key factor dragging down business confidence to a two-year low," said De Lima.

Payroll numbers

The latest results showed a broad stabilisation in headcounts across the manufacturing industry, following three successive months of job shedding. Companies commonly indicated that payroll numbers were sufficient to cope with current requirements, according to the survey.

Inventories, backlog

Meanwhile, outstanding business increased only marginally as the vast majority of panellists signalled no change in backlogs from February's levels. Indian manufacturers purchased additional inputs in March, with the rate of expansion remaining marked despite easing to the weakest since August 2021.

According to survey members, the upturn stemmed from stock-building efforts. Pre-production inventories continued to rise in March, marking a nine-month sequence of accumulation.

On the other hand, there was another decline in holdings of finished goods, which companies associated with the fulfilment of orders from stocks.

Vendor performance showed signs of stabilisation in March, as supplier delivery times lengthened only marginally and to the least extent in almost a year.

"For now, demand has been sufficiently strong to withstand price hikes, but should inflation continue to gather pace we may see a more significant slowdown, if not an outright contraction in sales,” De Lima.